Ita/458/2008 Of The Commissioner Of Income Tax v. M/S John Brown Technologies'

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 23 DAY OF JUNE, 2014. PRESENT THERE HON’BLE MR.JUSTICE N.KUMA AN D THE HON’BLE MR.JUSTICE B.MANOHAR, INCOME TAX APPEAL NO.458 OF 2008 BBRITIWE 1. THR COMMISSIONER OF INCOME TAX C.R.BUILDING QUEENS ROAD. BANGALORE ”2. THR DBPUTY COMMISSIONER OF INCOME TAX. C.R.BUILDING QUEENS ROAD. BANGALORE ... APPBKRLLANTS (BY SRI.K.V.ARAVIND, ADVOCATE) AND: M/S. JOHN BROWN TECHNOLOGIES(INDIA) PVT. LTD. NO.19, PRIME ROSE ROADBANGALORE—. RESPONDENT (BY SRI.A.SHANKAR AND M.LAVA, ADVOCATES) THIS INCOMB TAX APPKAL [IS FILED UNDERSECTION 260-A OF INCOME TAX ACT, 1961 ARISING OUT)OF|ORDERDATEHD16.11.2007PASSEDIN-ITA|NO.1981/BANG/2005 FOR THE ASSESSMENT YEAR 2000-200 1PRAYING|TORFORMULATETHRSUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND TO ALLOW|THR APPKAL AND SKHT ASIDE THR ORDEBR PASSBD BY THITAT BANGALORE IN ITA NO.1581/BANG/2005 DATED|16.11.2007 CONFIRM THR ORDERS OF THE APPBRLLATECOMMISSIONBRANDDEBPUTYCOMMISSIONBROF|INCOME TAX, BANGALORE. THIS APPEAL COMING ON FOR HEARING THIS DAY,N.KUMAR J., DELIVERED THE FOLLOWING:-. JUDGMENT This appeal is by the Revenue against the orderpassed by the Tribunal holding that the assessee cannotbe denied the deduction of unrealized profit on theeround that in the previous year, he had claimeddeduction under Section 8OHHB of the Income Tax Act, 1961.| 2 |During the financial year 1998-99, the assesseehadtakenUp|adetailed engineeringworkfor.construction of Multi Project Pipeline System in SouthEast Asia and this project is numbered 9104. The assessee has recognized revenue to the extent ofRs.1,90,74,098/- which resulted in a net profit ofRs.50,13,244/-. He claimed 8OHHB deduction of|Rs.29,06,622/- during the assessment year 1999-2000. —Due to various reasons, the project was stopped mid-way and hence the assesee abandoned the project. —During the year no revenue has been shown in respectto the project. However, assessee has not received thefull revenue which has been credited in the earlier year.The assessee was following Percentage CompletionContract Method of Accounting. Therefore, the assesseeduring|theyear,reversed1n ay?amountoT|Rs.36,/70,28/7/- from the turnover of the year whicrepresents the amount credited, but not received. TheAssessing Authority held that the reversal of income isnot in accordance with the Principles of Accountancy.The earlier year income cannot be reversed except forclaiming under the head ‘bad debts’. The reversal of income during the current year will result in the excessclaim of deduction under Section SOHHB to the earlier|year to the tune of Rs.18,35,144/-. If that is allowed,there will be an escape of Rs.18,35,144/- in the earlieryear. Therefore, the Assessing Authority disallowed thereversal|oT|incomeandaddedaynamountoT|Rs.36,/70,28/7/-. Aggrieved by the said order, theassessee preferred an appeal. | 3.|The Commissioner of Income Tax Appeals held,the excess revenue to the tune of Rs.36,70,287/- whichwas booked in the earlier year and also suffered tax inthe said earlier year, which became unrealizable duringthe caption assessment year, on account of stoppage ofproject was reversed in accordance with the normalmethod of accounting followed by the assessee, which isPercentage Completion Method. As per the accountingfor construction contract, the assessee has considered|the said amount as not received and accordingly, the same was reduced from the current year’s income. Inthat effect, the assessee had written off the same in his)books of accounts which has resulted in reduced turn|over, aS well as, the impugned amount receivable fromconcerned party. Therefore, the alternative claim ofassessee whether the said amount is allowable as bad|debt, is therefore in order. Accordingly, the appeal andthe order of the Assessing Authority was set aside. —Agerieved by the said order, the Revenue preferred anappeal to the Tribunal. — same was reduced from the current year’s income. Inthat effect, the assessee had written off the same in his)books of accounts which has resulted in reduced turn|over, aS well as, the impugned amount receivable fromconcerned party. Therefore, the alternative claim ofassessee whether the said amount is allowable as bad|debt, is therefore in order. Accordingly, the appeal andthe order of the Assessing Authority was set aside. —Agerieved by the said order, the Revenue preferred anappeal to the Tribunal. — 4The ‘Tribunal held that it the amount is notrealizable and has already been considered whileestimating the income, then the same is to be allowedas deduction. As per 80HHB(38)(i11), the assessee was_required to bring 50% of the profit and gains from theproject under consideration as foreign exchange intoIndia. If that condition is satisfied, then the deduction|under Section 80HHB has been allowed as per the law. — There is no requirement in law for claiming deductionunder Section 8OHHB. The entire profit should bebrought into India in the form of foreign exchange. ItObserves that the Assessing Authority feels thatamounts were inilated in earlier year to claim higherdeduction under Section SOQHHB and has material tosupport such finding, then he is free to take remedialmeasure as per law. It also held that the assesseecannot be denied deduction in respect of the amountwhich is unrealizable. Aggrieved by the said order,Revenue is in appeal before this Court. 5 |This appeal was admitted to consider the following substantial questions of law on 30.1.2009. (i) Whether the Appellate Authorities were.correct in holding that the assesseewould be entitled to reverse the entrymade in the earlier assessment year inrespect of an amount of Rs.36,/70,287/-declared as its income and deduction|correct in holding that the assesseewould be entitled to reverse the entrymade in the earlier assessment year inrespect of an amount of Rs.36,/70,287/-declared as its income and deduction| claimed under Section SOQHHB of theAct? (11) Whether the Appellate Authorities were|correct in holding that the assesseewould be entitled to reverse the entry bybasing1tsfindingOT]theearlier|assessment years as it is followingpercentagecompletionmethod|oT accounting which is not permissible inaccordance with amended Section 145 ot|the Act for het current assessment year?correct in holding that the assesseewould be entitled to reverse the entry bybasing1tsfindingOT]theearlier|assessment years as it is followingpercentagecompletionmethod|oT accounting which is not permissible inaccordance with amended Section 145 ot|the Act for het current assessment year? (111) Whether the Appellate Authorities were|correct in holding that the assesseeproducing designs and drawings in itsengineering units would amount toproduction of an article or thing andtherefore would be entitled to claim|deduction under Section. SOIA of the!Act?correct in holding that the assesseeproducing designs and drawings in itsengineering units would amount toproduction of an article or thing andtherefore would be entitled to claim|deduction under Section. SOIA of the!Act? 6. The learned counsel for Revenue assailing theimpugned order contended that when once the benefit (111) Whether the Appellate Authorities were|correct in holding that the assesseeproducing designs and drawings in itsengineering units would amount toproduction of an article or thing andtherefore would be entitled to claim|deduction under Section. SOIA of the!Act?correct in holding that the assesseeproducing designs and drawings in itsengineering units would amount toproduction of an article or thing andtherefore would be entitled to claim|deduction under Section. SOIA of the!Act? 6. The learned counsel for Revenue assailing theimpugned order contended that when once the benefit of deduction under Section 80HHB has been availed bythe assessee, he is not entitled to deduction in the)subsequent year on the ground that he has not receivedthe said amount. If it is permitted, it amounts to doublebenefit to the assessee, which is not permissible in law. —[|Per contra, learned counsel for the assesseesubmitted that once the conditions stipulated undersection SOHHB are fulfilled, the assessee is entitled tothe benefit of deduction under the said provision, as theassessee is following percentage completion contractmethod. Even though he has not received theincome/profit he had declared it so in his accounts, butwhen he did not receive the said amount it is treated asbad debts and written otf in his account. Once that|condition is satisfied in the subsequent year, he isentitled to the deduction of the said amount and that isprecisely what has been done and followed by the Authority. Therefore, he submitted that the impugnedjudgments does not call for any interference. 8.|In the light of the afore stated facts and rivalcontentions, it is not in dispute that the assessee hasdeclared revenue to the extent of Rs.1,50,74,698/-. Hehas shown the net profit of Rs.50,13,244/-. He claims.deduction of Rs.25,06,622/- during the assessmentyear 1999-2000. This claim is in accordance with law,which is not in dispute. However, the project wasstoppedmidwaywhichresulted.in.aSSECSSCEabandoning the project. During the subsequent year,no revenue has been shown in respect of the project.He also did not receive the full revenue, which has beencredited in the earlier year. Therefore, the assesseeduring the subsequent year, reversed in amount ofRs.36,/70,28/7/- from the turnover of the year whicrepresents the amount credited, but not received. Whenthe said amount was reversed and deduction claimed, the assessee did not put forth any claim under SectionSOHHB to that extent in the subsequent year on thatamount and therefore, it cannot be said that theassessee had double benefit. When once according topercentage completion contract method of accountingadopted by the assessee, he is expected to declare therevenue as well as the profit even in respect of amountswhich he has not received, merely because, he claimeddeduction under Section 80OHHB, he cannot be denied ofreversal of entry and deduction of the amount which hedid not receive, which was the subject matter of earlieryears return by claiming such deduction. The claim ofSOHHB deduction is also given up to that extent. Thereis no double benefit as contended by the Revenue. —Therefore, the order passed by the Appellate Authoritiesare strictly in accordance with law and no case forinterference is made out. Hence, the substantial| questions of law 1 and 2 are answered in favour of theassessee and against the Revenue. OQ In so far as, substantial question of law No.3 isconcerned, it is covered by the judgment of this Court inthe case ot|COMMISSIONER OF INCOME TAX & ANR. vs.JOHN BROWN TECHNOLOGIES INDIA (P) LIMITED)reported in|(2012) 77 DTR (KAR) 58. The saidsubstantial question of law is answered in favour ofassessee and against the Revenue. Accordingly, weanswer the said question also. In the result, there is nomerit. The appeal is dismissed. AHB Sd/-JUDGE Sd/-JUDGE